1. Under the Act of the Legislature of Kansas, approved Feb. 10,
1865, authorizing the board of county commissioners of any county
to, into, through, from, or near which any railroad is or may be
located to subscribe to the capital stock of the company, the
location of the road is not a condition precedent to submitting the
question of subscription to a votes of the qualified electors of
the county.
2. A proposition was submitted to the electors of Johnson
County, whether the board should be
"authorized to subscribe capital stock in the name and for the
benefit of Johnson County, in the sum of $100,000, to aid in the
construction of a railroad commencing at or near the Union Depot,
on the south side and near the mouth of the Kansas River, and near
Kansas City, thence to Olathe, in Johnson County, thence, in a
southerly direction, through said county to the southern boundary
of the State of Kansas."
Held that, under the statute, this was a sufficiently
specific description of the route of the contemplated road, and
that it was not necessary to insert the name of the company
constructing it.
3. Irregularities or informalities, not involving the question
of jurisdiction nor affecting the result of the vote, do not impair
the validity of the bonds issued pursuant to the election, and the
Curative Act of Feb. 25, 1868, was intended by the Legislature of
Kansas to reach the bonds issued before as well as those after its
passage.
4. Notice to one of the trustees appointed by the company in its
deed mortgaging its property, including the county bonds, to secure
the payment of its bonds, issued and negotiated for value to third
parties, does not, in a suit by the trustees to enforce the payment
of the county bonds, operate to destroy the
bona fide
holding of such parties.
This action was commenced by Nathaniel Thayer, F. W. Palfrey,
and George W. Weld, to recover the amount due upon interest coupons
attached to certain bonds, originally issued, to the amount of
$100,000, by the County of Johnson, in the State of Kansas, to the
Kansas and Neosho Valley Railroad
Page 94 U. S. 632
Company, in payment of a subscription of like amount made by it
to the capital stock of that company. The bonds and coupons,
although varying in amounts and in the dates of payment of the
several coupons, are in the same form. The following is a copy of
one of them:
"
No. 1] UNITED STATES OF AMERICA [$1,000"
"
STATE OF KANSAS"
"
Stock Bond of Johnson County, Kansas"
"Thirty years after date, Johnson County promises to pay to
Kansas and Neosho Valley Railroad Company, a corporation organized
and created under a general law of the State of Kansas, by virtue
of certificate of incorporation, filed and recorded in the office
of the Secretary of the State of Kansas, under date of March the
8th, 1865, or bearer, the sum of $1,000, for value received, with
interest at the rate of seven percent per annum, payable
semiannually at the Ninth National Bank in the City of New York,
from and after the first day of January, 1867."
"By order of the Board of Bounty Commissioners of the County of
Johnson, State of Kansas."
"OLATHE, KANSAS, Sept. 3, 1866."
"D. M. WILLIAMS"
"
Chairman Board County Commissioners, Johnson
County"
"[L.S.] Attest: F. E. HENDERSON,
Clerk"
"
Coupon"
"OLATHE, KANSAS, Sept. 6, 1867"
"Treasurer Johnson County will pay to bearer thirty-five dollars
in the City of New York, being semiannual interest due on the first
day of January, 1872, on the bond of the County of Johnson, No. 1,
to the Kansas and Neosho Valley Railroad Company, issued in
pursuance of an order of the county commissioners of said county,
dated Sept. 3, 1866."
"D. M. WILLIAMS"
"
Chairman Johnson County Commissioners"
"F. E. HENDERSON,
County Clerk"
The bonds are endorsed as follows:
"I, A. Thoman, Auditor of the State of Kansas, do hereby certify
that this bond has been regularly and legally issued; that the
signatures thereto are genuine; and that such bond has been duly
registered in my office, in accordance with an act of the
legislature,
Page 94 U. S. 633
entitled"
"An act to authorize counties, incorporated cities, and
municipal townships to issue bonds for the purpose of building
bridges, aiding in the construction of railroads, or other work of
internal improvement, and providing for the registration of such
bonds, and the repealing of all laws in conflict therewith."
"Approved March 2, 1872."
"Witness my hand and official seal this sixteenth day of April,
1872."
"[L.S.] A. THOMAN,
Auditor of State"
The authority to the county to subscribe was conferred by the
first section of c. 12 of the laws of Kansas for the year 1865,
which is set out in the opinion of the Court. The following
proposition was submitted to the electors of the county:
"Whereas, on the fourteenth day of February, A.D. 1865, an act
of the Legislature of the State of Kansas took effect and became in
full force, entitled, 'An Act to authorize counties and cities to
issue bonds to railroad companies,' and whereas, by law, the board
of county commissioners are authorized to call a special election
of the qualified electors of the county, to determine whether the
said board of county commissioners shall subscribe, in the name of
the county, to any railroad corporation to construct a road into or
through the county;"
"It is therefore ordered that a special election of the
qualified electors of Johnson County be held at the several voting
precincts in said county, on the seventh day of November, 1865;
that said election shall, in regard to qualifications of electors,
and the manner of receiving votes, and the manner of conducting
said election, be according to the laws in force governing
elections."
"The question submitted to the qualified electors at said
election shall be, whether the board of county commissioners shall
be authorized to subscribe capital stock in the name and for the
benefit of Johnson County, in the sum of $100,000, to aid in the
construction of a railroad commencing at or near the Union Depot,
on the south side and near the mouth of the Kansas River, and near
Kansas City; thence to Olathe, in Johnson County; thence, in a
southerly direction, through said county to the southern boundary
of the State of Kansas;"
"In case a majority of said electors shall vote for subscription
to the capital stock of said railroad, the board of county
commissioners shall issue the bonds of said county of Johnson, in
such
Page 94 U. S. 634
amounts as they may deem best, in payment of said stock,
provided that no part of said bonds shall be issued until
work on the said railroad shall be actually commenced in said
county, and then only in
pro rata assessments as the work
progresses.
and provided further that the whole of said
sum of $100,000 shall be expended within the limits of said county,
which said bonds shall bear interest at a rate not exceeding seven
percent per annum, and shall be payable within thirty years."
"The ballots of said election shall be written or printed: 'For
subscription to railroad;' 'Against subscription to railroad.' If a
majority of all the votes cast at said election be for subscription
to railroad, the board of county commissioners shall be authorized
to subscribe stock to said railroad in the name and for the benefit
of Johnson County, and to issue bonds in the manner heretofore
stated. All books shall be kept at the several voting precincts by
the judges and clerks of said election, showing the whole number of
votes polled for and against said subscription to railroad."
"The votes shall be counted by the judges of said election, and
the result proclaimed, and the poll books signed by the judges and
attested by the clerks as nearly in accordance with secs. 18 and
23, p. 459, Stat. of 1862, as may be practicable. After canvassing
the votes, the judges shall seal up and return the poll books to
the county clerk on or before the Friday next following said
election, and within three days after said election deposit one
copy of said poll books with the township trustee, and shall also
preserve the ballots used at said election. Secs. 25 and 26, p.
497, and Code 1862."
"The county clerk and commissioners will meet in Olathe on
Friday next following said election, to canvass and declare the
result, and make a record thereof."
"
Ordered that the foregoing order and notice be
published in the 'Olathe Mirror,' twenty days prior to said
election."
"DAVID M. WILLIAMS,
Chairman"
"Attest: F. E. HENDERSON,
County Clerk"
A majority of the electors voted at the time named, and in the
several precincts of the county, in favor of the subscription, and,
on the 3d of September, 1866, the county commissioners made it, and
it was accepted by the company.
In April, 1867, a call was made by the board of directors of the
company, upon all of their subscribers for stock, for the whole
amount unpaid upon their subscriptions.
Page 94 U. S. 635
On the sixth and twenty-seventh days of September, 1867, the
county commissioners issued and delivered to the company, in part
payment of the county subscription, bonds to the amount of $50,000,
which are a part of those in question.
On June 19, 1868, the following contract was entered into
between the president of the company and the commissioners of
Johnson County, to-wit:
"Know all men by these presents, that we, the Board of County
Commissioners of Johnson County, in the State of Kansas, in
consideration that the Kansas and Neosho Valley Railroad Company
shall construct and put into operation a railroad from a point near
Kansas City, Missouri, by way of Olathe, to the southern boundary
line of said Johnson County, in the direction of Paola, Kansas,
within eight months from this date, and in consideration of one
dollar to be paid by said railroad company, we hereby agree and
bind ourselves, for and in behalf of said Johnson County, to assign
and transfer to said railroad company, or their successors, the
$100,000 of stock heretofore voted and subscribed by said Johnson
County to the capital stock of said railroad company; and we do
further agree, in consideration of the premises aforesaid, to cause
to be issued, without delay, the $50,000 of bonds of the said
county remaining unissued and unpaid on the $100,000 of stock, so
as aforesaid voted and subscribed, and place said $50,000 of bonds
in the hands of J. E. Hayes, who shall hold said bonds as the
trustee and agent both of said Johnson County and said railroad
company, to be delivered by said J. E. Hayes to said railroad
company, or their successors, on their constructing and putting in
operation said railroad from said point near Kansas City to Olathe,
provided said railroad shall be constructed and put in
operation to Olathe within five months from this date."
"And we further agree, in consideration of the premises
aforesaid, that in any election of the stockholders of said
railroad company which may be held prior to the transfer of the
$100,000 of stock as above provided for, and while said railroad
company may be engaged in good faith in performing the conditions
upon which such transfer of stock is to be made, that we will cast
the votes to which said county may be entitled as a stockholder, in
such manner and for such persons as said railroad company, or their
successors, may request."
"It is hereby expressly understood that if said railroad company
shall fail to comply with the conditions above mentioned, then
this
Page 94 U. S. 636
agreement shall be null and void; but if the said company, or
their successors, shall fully comply with all of said conditions,
then this agreement shall be binding and in full force."
"Witness our hands at Olathe, this nineteenth day of June, A.D.
1868."
"B. F. HOLLENBACK"
"
Chairman Board of County Commissioners"
"JOHN BRADY,
Associate Commissioner"
The County Commissioners of Johnson County executed, June 22,
1868, the remaining bonds, to the amount of $50,000, and placed the
same "in escrow" with Josiah E. Hayes, to be delivered to said
railroad company, upon its compliance with the terms of this
contract.
On Oct. 5, 1868, the county commissioners, at the instance of
the president of the railroad company, made the following order
extending the time for completion of the road to Olathe:
"Whereas, by mutual agreement, the commissioners of the County
of Johnson have granted to the Kansas and Neosho Railroad Valley
Company an extension of time, from the nineteenth day of November
next to the fifth day of December next, within which to construct
their said road to the Town of Olathe, according to the provisions,
in other respects, of a resolution, ordinance, or agreement passed
or entered into on the nineteenth day of June, A.D. 1868, by the
said county commissioners, entitling the said railroad company to
the bonds and stock of said county voted and subscribed to said
company. It is therefore resolved by the Commissioners of Johnson
County that in the event said railroad company shall so construct
to the town of Olathe their said road on or before the fifth day of
December, in manner prescribed in the resolution, ordinance, or
agreement passed June 19, 1868, the trustee or commissioner named
therein shall, and is hereby instructed and empowered to, deliver
and assign to said railroad company the said stock and remaining
bonds of said county as heretofore authorized and instructed, the
same in all respects as though the said road had been constructed
to the town of Olathe on or before the nineteenth day of November,
1868."
"B. F. HOLLENBACK,
Chairman Board"
"JOHN BRADY"
"K. COATES,
President Railroad Co."
Page 94 U. S. 637
The company completed its road according to the terms of the
agreement; and, on the fifteenth day of December, 1868, said Hayes
delivered to it the remaining bonds. They were signed by said
Hollenback as chairman; but in other respects, except as to said
date, are similar to the bond, of which a copy is above given.
On or about March 29, 1869, and before the maturity of any of
the coupons in suit, the company, having previously changed its
corporate name to "Missouri River, Fort Scott, and Gulf Railroad
Company," executed a mortgage or deed of trust, bearing date Jan.
1, 1868, upon its railroad and other property, including the bonds
in question, to the plaintiffs as trustees, to secure the payment
of five thousand negotiable bonds, of $1,000 each, bearing the same
date as the deed of trust, which the company, before the maturity
of any of the coupons now in suit, had issued and transferred, for
value, to various persons, by whom they are still held.
Immediately after the execution of the deed, the company
delivered the county bonds in question to the plaintiffs, who have
ever since held them.
All of the coupons for interest that matured prior to those in
suit were regularly paid by the county with funds raised by the
levy and collection of a tax for that purpose.
Thayer, one of the plaintiffs, had notice of all the facts
connected with the issue of the county bonds; of the agreement of
June 19, 1868; of the assessment of the stock by the company, and
of its nonpayment; and of the issue of stock as a bonus to the
purchasers of the bonds of the railroad company, and of the facts
connected with the completion of the road to Olathe; but the other
plaintiffs had no such notice, nor had the purchasers of the
railroad bonds.
The Curative Act, as it is termed, of Feb. 25, 1868, is set
forth in the opinion of the Court. The action was tried by the
court without a jury, and a special finding of facts made. The
court found, as a conclusion of law, that the plaintiffs were
entitled to recover the amount of the coupons declared on. Judgment
was entered accordingly. The defendants sued out this writ of
error.
Page 94 U. S. 638
MR. JUSTICE HUNT delivered the opinion of the Court.
The recovery by Thayer and others of the amount of the coupons
sued upon is challenged upon various grounds.
1. It is contended that no authority to subscribe for the bonds
was conferred by the vote of Nov. 7, 1865, for the reason that no
particular railroad was referred to in the vote on that occasion.
The question was submitted to the voters of Johnson County in the
form of an inquiry whether the commissioners should be authorized
to subscribe capital stock to the amount of $100,000, to aid in the
construction of a railroad commencing at or near the Union Depot,
on the south side of and near the mouth of the Kansas River, and
near Kansas City; thence to Olathe, Johnson County; thence, in a
southerly direction, through said county to the southern boundary
of the State of Kansas. Assuming that the road to which the
subscription was made met the terms required, it is insisted that
the question of subscribing to the particular railroad company by
name should have been submitted to the electors, and that there
must have been an actual location of the road before the election
was held.
We had occasion to consider a question similar to the latter
branch of this objection in
County of Callaway v. Foster,
93 U. S. 567, and
held that the objection was not a valid one.
In that case, the statute authorized a subscription by any
county "in which any part of the route of said railroad may be."
The road was not built, located, nor organized. The court there
intimated that, where this language was used in reference to a road
which was yet to be built, it could be applied to any county in
which the road might by law be located.
The road to which subscription was in this case made was, in
fact, located in the County of Johnson, and the work upon it
commenced before any of the bonds were executed or delivered -- was
actually built through the county, and is now there operated. We
think a previous location of the road was not required by the terms
of the statute.
Was it necessary that the particular road to which a
subscription was intended to be made should be described in the
proposition submitted to the popular vote, or was the general
language used in this case a compliance with the law?
Page 94 U. S. 639
The following is the section of the act of Feb. 10, 1865,
controlling the question:
"SEC. 1. That the board of county commissioners of any county
to, into, through, from, or near which, whether in this or any
other state, any railroad is or may be located, may subscribe to
the capital stocks of any such railroad corporation, in the name
and for the benefit of such county, not exceeding in amount the sum
of $300,000 in any one corporation, and may issue the bonds of such
county, in such amounts as they may deem best, in payment for said
stocks,
provided that such bonds shall be issued only in
payment of assessments made upon all the stocks of such railroad
company, which bonds shall bear interest at a rate not exceeding
seven percent per annum, and shall be payable within thirty years.
And the said board of commissioners shall elect one of their
number, who shall not be a stockholder, to cast the vote of the
county at any election for directors, or at any meeting of the
stockholders of such company, and said board of commissioners shall
annually levy and collect, at the same time and in the same manner
that general taxes are levied and collected, a tax sufficient to
pay the annual interest on such bonds and to create a sinking fund
for their redemption. But no such bonds shall be issued until the
question shall be first submitted to a vote of the qualified
electors of the county at some general election, or at some special
election to be called by the board of county commissioners, by
first giving twenty days' notice in some newspaper published and
having general circulation in the county, or, in case there be no
paper in the county, then by written or printed notices posted up
in each election precinct, and in submitting said question, said
board of commissioners shall direct in what manner the ballots
shall be cast. If a majority of the votes cast at such election
shall be in favor of issuing such bonds, the board of commissioners
of the county shall issue the same."
This language, in relation to the road to which the subscription
may be made, is as general as words can make it. The board of
commissioners may subscribe to the capital stock of "any railroad"
which is or may be located in or near the county they represent,
and may issue the bonds of the county in payment for said stocks.
"But no such bonds shall be issued until the question shall be
first submitted to a vote of the qualified electors of the county."
In neither of these clauses is there a qualification that the
particular road shall be
Page 94 U. S. 640
named in the submission, or that any detail shall be set forth.
The burden of bonds shall not be imposed upon the county except by
the previous assent of a majority of the electors. When the burden
is assumed by the electors, it is quite reasonable that it should
be left to the county board to select the particular corporation in
which the stock shall be taken. That trust can be there executed as
wisely and judiciously as at a mass meeting of the voters.
The electors here voted to take stock in a corporation to aid in
the construction of a road
"commencing at or near the Union Depot, on the south side of and
near the mouth of the Kansas River, and near Kansas City; thence to
Olathe, Johnson County; thence, in a southerly direction, through
said county to the south boundary of the State of Kansas."
We think this was a sufficiently specific statement to be
submitted to the voters for their approval or disapproval.
We cannot, however, think that this is a vital point, even if
there was a defect in this respect. The question of subscribing for
the stock and issuing the bonds for a road from the mouth of Kansas
River to the south boundary of the state was submitted to the
electors of Johnson County. Notice was given for the time required
by the statute, and a full and fair vote was taken, so far as we
are informed. The approval of the electors by their vote, at a
meeting called for that purpose, is the object of the statute.
Defects, irregularities, or informalities, which do not affect the
result of the vote, do not affect its validity. The defect we are
considering, if it is a defect, does not go to the question of
jurisdiction, and does not impair the validity of the bonds.
The case of
Lewis v. Commissioners of Bourbon County,
12 Kan. 186, is cited on this point. In that case, four questions
were passed upon by the Supreme Court of Kansas:
First, was the presentation of a petition, signed by
one-fourth of the qualified voters, a condition precedent to the
valid action of the commissioners?
Second, did the failure to name the corporation in the
propositions submitted to the electors avoid the whole
proceedings?
Third, a majority of the votes of the electors having
been cast against the proposition to issue bonds, was the county
board authorized to issue them?
Fourth, did the
Page 94 U. S. 641
subsequent submission, and the proceedings thereon, confer the
authority to issue the bonds?
The court held that the first objection was cured by the act of
1868. The second and the third objections were held to be fatal,
and that the case was not relieved by the proceedings referred to
in the fourth objection.
The court did, in its language, hold that the objection raised
in the present case, to-wit, that the name of the corporation was
not inserted in the proposition for the popular vote, was fatal.
Had this been the only or an indispensable part of the decision, we
should have been called upon to inquire whether the decision was
one of that class of state decisions upon its own statute that was
binding upon us. The other question, however, existing and decided
in that case, was, in its nature, so exclusive and so controlling
that anything said or professed to be decided beyond it does not
require much consideration. The court held that, in the exercise of
its general jurisdiction, it had the power to inquire into the
number of votes actually cast for and against the proposed issue of
bonds, and, upon making such inquiry, it found and determined that,
in fact, a majority of the votes cast were cast against the
proposition. Upon this point all the decisions of this Court, and,
so far as we know, of all other courts, concur. If a majority of
the electors cast their votes against the proposition to issue
bonds, the entire foundation of the proceedings is gone. There is
an absolute want of jurisdiction to proceed further in the matter,
and an attempt to do so is void, as are all proceedings or issues
based upon it. With this elemental failure existing in that case,
other and further decisions tending to the same result are not to
be regarded as authority.
The
Gulf Railroad v. Commissioners of Miami County, 12
id. 234, is based upon the case above referred to, and
follows it, without examination or discussion. It does not refer to
the Curative Act of Feb. 25, 1868, which was held, in the
Bourbon County case, not to be applicable to an election
where a majority of votes was cast against the proposition, but
which act, it was held, did relieve against the defect of the
absence of the preliminary petition required by the statute. The
court said that act was intended to sustain, and not to defeat, the
will
Page 94 U. S. 642
of the people. This principle would have justified its
application in relief of the defect before it, if there was such
defect, and its consideration might well have altered the result.
Both of these decisions were made after the bonds in this suit had
been issued, and the interest upon them regularly paid for a
considerable time. The road had been built as promised, the County
of Johnson and its people enjoyed the anticipated benefits, and we
are of the opinion that we are not bound to follow a decision which
releases them from all the corresponding obligations. To this
effect are the decisions of this Court made in the years 1865,
1871, and 1872.
Gelpcke v. City of
Dubuque, 1 Wall. 175;
Bulls
v. Muscatine, 9 Wall. 571;
Olcott v.
Supervisors, 16 Wall. 678.
The Curative Act of February, 1868, was intended by the
Legislature of Kansas to reach cases like the present, and to cover
both the bonds issued before, as well as those issued after, its
passage. It is as follows:
"SECTION 1. Whenever a majority of the persons voting at any
election called by the board of county commissioners of any county
have heretofore voted in favor of subscribing stock and issuing
bonds to any railroad company or companies, the board of county
commissioners of such county may subscribe to the capital stock of
such railroad company or companies to the amount and on the
conditions specified in the order of such boards of county
commissioners in such cases, and pay such subscription, by issuing
to each company bonds of such county at par, payable at a time
therein to be fixed, not exceeding thirty years from the date
thereof, bearing interest at the rate of seven percent per annum,
with interest coupons attached, whether such orders and elections,
or either of them, have been in compliance with the statutes in
such cases made and provided or not, or whether the proposition
submitted at the election had was for the subscription of stock and
the issuance of bonds to one or more railroad companies."
"SEC. 4. The provisions of this act shall be applicable in all
cases where the election was held upon the subscription of stock
and the issuance of bonds prior to the twenty-first day of January,
A.D. 1868."
In the language before quoted, this act was intended to aid, and
not to destroy, the proceedings in subscribing for stock
Page 94 U. S. 643
and issuing bonds. In this case, the election was held prior to
the twenty-first day of January, 1868, and, although a portion of
the bonds had been issued prior to the passage of the act, we are
of the opinion that they are within its protection. It was intended
to reach cases where the majority of the electors had voted in
favor of issuing the bonds, "whether such orders and elections, or
either of them, have been in compliance with the statutes in such
cases made and provided or not."
It is contended again that by an agreement made on the 19th of
June, 1868, the stock of the county in the company was cancelled,
and that therefore there was no consideration for the sale of the
bonds.
By the agreement referred to, the county undertook to deliver to
the road the $50,000 bonds, yet unissued, to sell and deliver its
interest in the capital stock of the company, and in the meantime
to cause its stock to be voted upon, as the company should direct,
provided that the road should be built and completed to the
southern boundary of Johnson County within eight months, and to the
Town of Olathe within five months, from date, the bonds to be
issued, and placed in the hands of a depositary, to be delivered
upon the performance of the agreement.
A completion of the road at an earlier period than was required
(no time being specified in the original proposition), and at a
probable increase of expense, seems to afford a good consideration
for any lawful agreement on the part of the county. We fail to
discern the force of this objection, or of the point connected with
it, that the stock became thereby cancelled. The commissioners had
authority to sell the stock, Compiled Laws of Kansas, 1862, 409;
and, unless prohibited by law, an incorporation may become the
holder of a portion of its own shares.
City Bank v. Bruce,
17 N.Y. 507.
We do not regard the circumstance that the road was located and
built a fraction of a mile distant from the town of Olathe as of
any importance. It was a practical compliance with the requisition
in that respect, and was accepted and received by the county as a
satisfactory performance of the contract. The bonds were issued
after the location, and the interest was paid from time to time
without objection or complaint in that respect.
Page 94 U. S. 644
It is too late now to set up an objection which is an evident
afterthought.
It is contended, further, that there is no
bona fide
holding of these bonds, and that all defenses may have their full
effect in this case.
"The court below finds that the plaintiff Thayer had notice of
all the facts and circumstances connected with the issue of these
bonds by Johnson County, and of the agreement of June 19, 1868, and
of the facts with regard to the assessment of the stock by the
railroad company and of its nonpayment, and of the issue of stock
as a bonus to the purchasers of the bonds of the railroad company,
and of the facts with regard to the completion of the road to the
town of Olathe; but his co-trustees had no such notice, nor did the
purchasers of the first mortgage bonds have such notice, except so
far as they are charged with constructive notice by reason of the
knowledge of Thayer, one of the trustees."
It is a part of the case that on the first day of January, 1869,
the railroad company executed to Nathaniel Thayer, F. W. Palfrey,
and George W. Weld, the plaintiffs in this suit, a deed of trust
conveying a large quantity of lands, and transferring, among other
things, its subscriptions from towns and counties, including that
now in suit, to secure the payment of $5,000,000 of its negotiable
bonds to be issued by the said company, as therein particularly
described; that before the coupons now sued upon had become
payable, the railroad company had issued those bonds, which are now
outstanding and unpaid to the full amount thereof.
The question then arises whether notice to one of the trustees
in this deed of trust is notice to the holders of the mortgage
bonds in such manner that, in a suit by the trustees to enforce
payment of the county bonds, the character of a
bona fide
holder without notice is lost.
In
Curtis and Others v. Leavitt, 15 N.Y. 194, the court
said:
"If Graham, one of the trustees, was chargeable, as director of
the company, with knowledge that there had been no previous
resolution, notice to him was not notice to his
cestuis que
trust. He did not stand to them in the relation of an agent.
He was selected and appointed as a trustee by the company, not by
the
cestuis que trust.
Page 94 U. S. 645
His powers and duties were prescribed by the company, not by the
bondholders. There were, at the time of the execution of the trust
deeds, no bondholders, no
cestuis que trust. It is a
necessary attribute of an agency that it should be created by the
principal. . . . In this case, as the relation of principal and
agent did not exist between the bondholders and Graham, notice to
him, or knowledge by him, that there was no previous resolution,
was not constructive notice to the bondholders."
And again, on the page following it is said:
"The trustees are not to be regarded as the agents of the
purchasers of the bonds and mortgages assigned to them. No
consideration proceeds from them. They were mere assignees of those
securities, coupled with no interest, in trust to hold them as
security for the payment of all the mortgage bonds that should
thereafter be sold or negotiated by the company. . . . Whoever
purchased the mortgage bonds became purchasers of the bonds and
mortgages so assigned as security for their payment, or of an
equitable right to hold them as such security."
We think this is sound doctrine, and that it establishes the
proposition that notice to Thayer did not operate to destroy the
bona fide holding of the bondholders under the deed of
trust in which he was named as one of the trustees.
We have noticed all of the objections which we deem of
importance, and are of the opinion, upon the whole case, that the
judgment should be affirmed, and it is
So ordered.
